How can the Federal Reserve adjust the money supply?

The Federal Reserve can effectively adjust the money supply primarily through buying and selling Treasury securities, a practice known as open market operations. When the Fed buys Treasury securities, it injects liquidity into the banking system, enabling banks to lend more money, which increases the overall money supply. Conversely, when the Fed sells Treasury securities, it takes money out of circulation, reducing the money supply. This mechanism is a crucial tool used to influence interest rates and control inflation, thereby stabilizing the economy.

The other options do not directly relate to the Fed's primary mechanisms for influencing the money supply. For instance, while changing interest rates can influence economic activity, the actual adjustment of the money supply occurs through the buying and selling of securities. Regulating foreign exchange rates involves international monetary policy but does not directly affect domestic money supply. Issuing new currency notes is a function of increasing physical currency in circulation but is not a primary method for adjusting the overall money supply in relation to economic performance. Thus, the use of Treasury securities is the most effective and immediate method for altering the money supply.